Otelco Reports Q3 634194Otelco Reports Q3 634194

Rural service provider reports revenues of $17.1 million, up 47% from the previous year, following acquisition of Mid-Maine Communications

November 3, 2006

3 Min Read

ONEONTA, Ala. -- Otelco Inc. (AMEX: OTT; TSX: OTT.un), the sole wireline telephone services provider in several rural communities in Alabama, Maine and Missouri, today announced results for its third quarter ended September 30, 2006. Key quarterly highlights for Otelco include:

  • Total revenues of $17.1 million

  • Operating income of $4.5 million

  • Adjusted EBITDA (as defined below) was $8.7 million



"The third quarter was highlighted by the completion of our acquisition of Mid-Maine Communications, Inc. on July 3, 2006," said Mike Weaver, President and Chief Executive Officer of Otelco. "Total revenue for the third quarter increased 47.0% from the comparable quarter in 2005, reflecting the acquisition, as well as increases in digital high-speed Internet subscribers and growth in residential bundled services. Income from operations increased 2.2% over the same quarter in 2005 and held constant compared to second quarter 2006. Our allocation of the purchase price resulted in a net increase in fixed assets of $2.6 million. The depreciation expense associated with these assets is $0.2 million per quarter. In addition, amortization of intangibles was $0.5 million and we recorded a non-recurring write-off of prior loan costs. These items are included in operating expenses. Adjusted EBITDA (as defined below) increased by 26.5% to $8.7 million from $6.9 million in the third quarter of 2005. The Maine properties contributed quarterly EBITDA of $1.5 million and the Alabama and Missouri operations contributed EBITDA of $7.2 million, which represents a 5% increase over the comparable quarter in 2005.

"The acquisition of Mid-Maine increases our access line equivalents by 22,814 or 58%," added Weaver. "This acquisition and the resultant amendment of our existing credit agreement allowed us to obtain a reduction of 0.75% in the interest rate on the $120 million senior debt. This reduction will result in annual savings of $0.9 million in interest expense.

"Operationally, Mid-Maine grew subscribers lines in their statewide CLEC business while our rural businesses continued to add more digital high-speed subscribers than we lost basic access lines," added Weaver. "Digital high-speed Internet access grew 48.9% since second quarter of this year while our long distance subscribers increased 27.3% in the same period. Excluding Mid-Maine, the decline of basic access lines is approximately 2.9% on an annualized basis since the first of the year. On September 18, 2006, we filed the historical financial statements of Mid-Maine as well as pro forma financial information for the acquisition. Our integration process is moving forward on schedule and we are seeing consistent subscriber growth in Maine.

"While the completion of the acquisition of Mid-Maine was our primary focus this quarter, we continued to make improvements to our operations in Alabama and Missouri," noted Weaver. "In this quarter, we completed our analysis of switching equipment and purchased a soft switch for our Alabama companies. The installation of the switch should be completed in the fourth quarter. In addition, we are working on an unlimited calling plan for our Missouri operations and expect to implement it by early next year.

"On October 2, 2006, Otelco paid $4.3 million to its' IDS holders, which represents our seventh consecutive distribution of interest and dividends of approximately $0.42 per Income deposit Security (IDS)," pointed out Weaver. "Overall, our third quarter results and operating position are consistent with our expectations for 2006. We are focused on improving cash flows from our combined businesses and continuing to return cash to our shareholders."

Otelco Inc.

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